You can take care of human family members by giving them an inheritance. On the other hand, you cannot give property to your pet because your pet is property. Nevertheless, in a growing number of States (including Hawaii), you can provide financially for your pet with a pet trust.

After all, the needs of a pet can be simple, but someone needs to provide care. A pet trust is a legal vehicle that can be designed to be there for your pet when you are not, providing a caretaker and financial resources according to your instructions.

11/05/2013

A trust is the
legal relationship that arises when a
person transfers “stuff” to a trustee
with the understanding that the trustee will manage it for the benefit of one
or more beneficiaries.“Stuff” includes any kind of property you can
own:real
property—such as land and buildings—and personal
property—such as bank accounts, stocks and bonds, and personal effects.A person who transfers stuff to a trustee is
called a trustmaker.The trustmaker can be the trustee and the initial
beneficiary of the trust.

A trust is controlled by a document called the trust agreement.The trust agreement sets out the rules about
how the trust will be run.If the trust
agreement says that the trustmaker can revoke it or change it, the trust is
what we call a revocable trust.Revocable trusts are well suited to avoiding
probate and keeping your loved ones from having to go to court if you become
incapacitated. If the trust agreement
does not allow the trustmaker to change or revoke it, we have what is called an
irrevocable trust. Irrevocable trusts play an important role in
many estate plans.They can help provide
tax savings, creditor protection, and expert management of assets.

Your estate plan can include as many varieties of
trusts as may be required to accomplish your objectives.The different kinds of trusts are like the
different tools in your toolbox or the different utensils in your kitchen
drawer. Using the right one at the right
time can make a huge difference in how easily and how well you finish a job or
serve a meal.

10/18/2013

If you have come into sudden wealth – whether by windfall,
asset sale, or inheritance – then now is the time for some immediate asset
protection planning.

Structuring your ownership of those assets in order to
protect them from creditors and predators is something cannot afford to
overlook. However, such structuring and protecting can get complicated. Much of
what you can do (and cannot do) hinges on the nature of the assets, the risks
inherent in those assets, and the threats of liability you may be facing.

Thankfully, there are some common strategies worth
exploring. Forbes recently offered
six proven asset protection strategies to shield both you and your important
assets.

Increase liability insurance: insurance
provides a warchest to defend you against claims and to pay valid claims.

Separate assets: sometimes the worst thing
you can do is put other family members on title to your assets. Sometimes it is the best thing you can
do. A lot depends on the kinds of protections afforded by State
law. For example, Hawaii law allows you to hold assets in "tenancy
by the entirety," which can go a long way toward keeping those assets out
of the hands of creditors.

Consider a business structure: the
business exists as an entity that is not “you,” and its liabilities are not
your liabilities, so owning special assets (like rental properties) through an
LLC or corporation will work to shield you and your individual assets.

10/04/2013

A trust can be the foundation of an effective estate plan, but it is not necessarily the foundation of every effective estate plan. Trusts are powerful tools for accomplishing important tasks, but no one trust works for everybody, and not everybody needs a trust. Sometimes, a trust can outlive its usefulness (if it was even needed in the first place), and it can leave a person asking, "how do I get
rid of the trust I already have?”

Trusts are among the most powerful tools for moving wealth outside the reach of the gnashing
teeth of the estate tax and the courts. For much of the last two decades, the estate tax rules have not been predictable from year to year, so many people adopted trusts for primarily tax planning purposes. However, at the beginning of 2013, Congress gave us reason to believe that the estate tax will not affect the vast majority of us when it hiked the Coupon Amount (the amount a person can pass on estate tax-free) all the way up to $5 million and added an annual inflation adjustment.

The new estate tax rules do not mean that anybody who has less than $5 million worth of assets cannot benefit from incorporating trusts into her or his estate plan. It is just that now that taxes are not such a big concern, we can focus on the other benefits of trusts, which include such things as asset protection and probate avoidance.

But what if you have a trust that you really don't need anymore? That can happen for a variety of reasons, and your best move might be to get rid of it in the most efficient and inexpensive way possible. The Wall Street Journal recently
published an article titled “How to Dismantle a Trust” which provides some great pointers.

As the article notes, there is a
way to properly blow up your trust. On the other hand, do not be too quick with
the dynamite. Why? There may be some really great reasons to keep your trust that aren't that apparent right now.

For example, the probate
and conservatorship avoidance afforded by a properly funded revocable living trust can save
time, money, and inconvenience should you become incapacitated or die. Moreover, the inheritance protection available for your heirs can be an
important consideration. Do you want your child's inheritance to end up in the hands of an ex-spouse or a creditor? If not, your best solution might be a trust.

If you have yet to set up a
trust, there are still many great reasons to establish one for yourself and
your loved ones. On the other hand, if your current trust is more burden that
benefit, then the trust can be shut down.

08/02/2013

Even though you made sure to
prepare your Last Will and Testament and your Revocable Living Trust, those documents are not always the final word on the
distribution of your assets. Take, for
example, your IRA. An IRA will be
directed by the common beneficiary form--which you may have completed
without thinking through the potential outcome--and not by the terms of your Will or Trust agreement, unless you name your estate or your trust as the beneficiary.

Warning: think twice before designating your
“estate” as the beneficiary of your IRA. This severely limits the distribution (and
taxation) options available to your heirs. This matter was explored in a recent article
in The Slott Report titled “IRAs and Wills Don’t Mix.”

While your “estate” can be the
beneficiary of your IRA, and your Will thereafter determines the distribution of
the retirement funds, this might not be best idea tax-wise. IRAs are very specific and peculiar assets
with very specific inheritance rules. If
your “estate” is the beneficiary of your IRA, then very “unfavorable”
withdrawal rules apply. Instead of the
IRA being withdrawn over the life expectancy of the beneficiary (who may be much younger than the plan owner), the funds must be withdrawn within five years or
perhaps over your remaining actuarial life expectancy if you die prematurely.

Naming your RLT as beneficiary may have disadvantages as well. Some individuals set up separate trusts to be the beneficiaries of their IRAs on behalf of their spouse, children, or other beneficiaries. These trusts can provide a high level of protection from creditors, predators (like ex-spouses), and poor judgment on the part of the beneficiaries. At the same time, these trusts can help maximize the tax benefits of the IRA.

Yes, this can get rather complicated. Make sure you consult with
competent legal, tax, and financial planning counsel when coordinating the distributions from your Will, your Trust, and your IRA.

07/18/2013

Asset Protection Planning ("APP") is something we do to put ourselves and our loved ones in the optimum position to respond to creditors. Creditors have an array of weapons that they can use against debtors, and the best defense against those weapons is a strategy that will slow a creditor down or stop the creditor in his or her its tracks. APP is never to be used to help somebody get away with not paying a legitimate debt, but it can be used to create a level playing field where disputed claims can be resolved fairly.

To understand APP strategies and be able to use them effectively, you need to understand the concept of "inside out" vs. "outside in" liability.

The classic example of "inside out" liability is when a business activity somehow goes awry and somebody gets hurt financially or physically or both. The aggrieved party will come looking for a way to be made whole, starting with the business and its assets. However, if the claim cannot be satisfied at that level, the creditor will try to follow the business owners home to see what else they own, in hopes of satisfaction out of those additional assets. In other words, liability arising inside the business strikes assets that are outside, and unrelated to, the business.

But what if the claim arises outside the business and cannot be satisfied with non-business assets? For example, if one of the business owners gets in a car accident while on vacation and not on company company time, the aggrieved party will try to get satisfaction out of whatever the business owner owns--including his or her interest in the business. In this example, liability is coming from the outside, and the creditor is hoping to be paid by the business (or out of the offending party's share of the business), even though the claim has nothing to do with the business. This is "outside in" liability.

An effective APP looks at the risks of "inside out" and "outside in" liability and tries to protect against both. The plan will often involve layered strategies to accomplish its mission, including corporations, limited liability companies, and trusts.

07/05/2013

If you have a taxable estate or would simply like to see your loved ones
benefit from your generosity during your lifetime, you may want to consider
“giving” while you are living.A recent
article in Forbes titled “Best Ways To Give Your Heirs Money While
You're Alive,” explored this subject.

There are tax limitations that come into play when you are making gifts.In order to avoid triggering any transfer
taxes, you’ll want be aware of the limits and “safe harbors.”For example, you can gift up to $14,000 worth
of assets per recipient ($28,000 for a married couple) without even having to
report the gifts to the IRS.In
addition, there are many ways to “leverage” your exemptions to give away more
value than you might imagine.

Remember that this is a complicated area where you may want guidance from
your trusted advisors.There are several
layers of State and Federal estate, gift, and generation-skipping transfer
taxes to take into account.And although
gifts themselves are generally not income taxable, they may give rise to income
or capital gains tax consequences.Giving
while you are living can provide a wonderful benefit for both the givers and
the receivers if you have a proper plan in place.

07/03/2013

A nationwide scheme for squeezing money out of unsuspecting consumers has raised its ugly head in Hawaii. New real estate owners and individuals who have recently transferred their homes into their revocable living trusts are receiving letters from a company calling itself "Property Transfer Services." The letters warn the recipients of the importance of having copies of deeds to their real estate, and give the recipients a deadline to send in $83.00 for a copy of their deeds. The letters are official-looking enough to fool people into spending money on documents that they can get for free or for far less than $83.00.

If you receive one of these letters, you can safely ignore it. Nothing bad will happen to you or your home if you do not send in the $83.00. What Property Transfer Services is doing is not necessarily illegal, but it has deceived some of our clients into thinking they had to get a check in the mail right away. Fortunately, the clients contacted us, and we were able to clear the matter up without our clients getting fleeced.

It is anyone's guess how many people just send in the $83.00. Please don't fall for this. If you receive one of these letters, throw it away. If you are nervous about doing that, call your lawyer or your realtor and see what they advise. You can also contact your local office of consumer protection. In Hawaii, the URL for the State Office of Consumer Protection is http://cca.hawaii.gov/ocp/, and the phone number is 808-587-4272.

03/06/2013

If you want to scare the you-know-what out of your grownup kids, casually let them know that you are talking with your lawyer about leaving your assets to your descendants in "generation-skipping trusts." The name implies that somebody is going to be skipped when it comes time to distribute your stuff after you are gone, but "somebody" may only be the IRS, along with your descendants' creditors and ex-spouses.

Of course, if you want to, you can snub your kids and leave everything to their kids, but that is not usually how a generation-skipping trust ("GST") works. More typically, the GST agreement will name your children as beneficiaries, but not include a requirement that everything be distributed to your children. For tax and asset protection purposes, it can make a great deal of sense to have your trust agreement give your successor trustee the discretion to make (or not make) distributions to your children and their descendants, and have the trust last as long as the law of your State (or the State in which the trust is created) will allow. As long as the trustee is not a beneficiary or close relative or employee of a beneficiary, your descendants' creditors and ex-spouses will generally not be able to get their hands on any trust assets.

If you like, you can split your estate into as many GSTs as you have children, and then give each of your children the power to remove and replace the trustee of his or her GST. That way, each child controls his/her trust during his/her lifetime. You can also give each child the power (called a "power of appointment") to say where any remaining trust assets go after the child's death. The default in the trust agreement might be that the assets continue in a trust or several trusts for the child's children, but the power of appointment could give each child the power to change the percentages going to the grandkids and even add stipulations to how and under what circumstances distributions will be made to the grandkids.

If you do all of the above in the right way, you can be pretty sure that the IRS will not get its estate tax hooks into your assets for a very long time after you are gone. As long as the trust produces income, there will probably be income tax to pay, but payment of estate tax can be entirely avoided.

One of the best estate planning rules is that you can, within certain limits, write your own rules when it comes to your estate plan. Talk with your trusted advisors about the kind of rule book that will best carry out your wishes for your estate.

02/01/2013

Now that 2013 is underway, there
are finally some solid numbers from which to base your tax planning – at least
from a federal tax standpoint. But what about those state taxes? If you
reside in one of 22 jurisdictions that assess an independent
inheritance or estate tax, it’s time to start paying attention to your state’s
tax changes.

There always are myriad state
level taxes to consider. However, here’s the rub: several states may tax one estate. For example, the family of the Seattle resident who spent summers in his Waikiki condo could have to face estate tax liability in both Washington and Hawaii, in addition to Federal level taxes. Twenty-two jurisdictions
(including the District of Columbia) exact some form of taxation. The tax laws of many of those jurisdictions were not written with the current federal
taxation limits in mind, because those have only been on the books since the
beginning of the year.

The good news is that Hawaii tries to match the Federal Coupon amount (i.e., the amount that can be passed free of estate tax), and that amount is currently $5.25 million. This means that estates of no more than $5.25 million ($10.5 million for couples who plan carefully to use both of their Coupons) can pass estate tax-free. The bad news is that the Hawaii estate tax on the excess over $5.25 million is 16%--which is imposed on top of the 40% Federal estate tax. Federal law does allow a deduction for State estate taxes paid (within limits), and this brings the overall tax bite down to about 50%.

So what states are the worst for
2013? It’s worth clicking over to the original article and map on Forbes.